On August 29, 2007, the Securities and Exchange Commission filed a Complaint against electrical contracting company Integrated Electrical Services, Inc. (IES), and its former Chief Executive Officer, Herbert R. Allen, former Chief Operating Officer, Richard L. China, former Regional Operating Officers, Ernest P. Breaux and Thomas E. Stalvey, former Regional Controller, James M. Calcote, and former subsidiary president, J. Carl Cannon, alleging that they engaged in numerous disclosure and accounting violations in 2003 and 2004.

The Commission's complaint, filed in the Southern District of Texas, alleges that over the course of four consecutive quarters during 2003 and 2004, IES failed to disclose in its Commission filings that the collectibility of approximately $3 million in unsigned change orders from two construction contracts was in dispute at one of its subsidiaries, and that IES failed to appropriately reserve for these material loss contingencies in its financial statements. The complaint alleges that Cannon, the subsidiary president, represented to IES's external auditors that the change orders were fully collectible at a time when he knew they were in dispute. The impact of the disputed change orders was material to IES's pre-tax income during the relevant periods, and ultimately IES wrote off approximately 70% of the income previously recorded from the change orders. In addition, the complaint alleges that during three of those quarters, IES lowered its allowance for doubtful accounts by approximately $1.8 million without proper disclosure to investors. The complaint alleges that the individual defendants — members of IES's senior, regional, and subsidiary management — each knew that the collectibility of the unsigned change orders was in dispute, and based on their respective conduct, aided and abetted IES's disclosure and accounting violations.

The Commission's complaint alleges that IES violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, and 13a-13 thereunder. The complaint further alleges that Allen, China, Breaux, Stalvey, Calcote, and Cannon aided and abetted IES's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. In addition, the complaint alleges that Allen violated Exchange Act Rule 13a-14, Cannon violated Exchange Act Rule 13b2-2, and China aided and abetted IES's violations of Section 13(b)(2)(B) of the Exchange Act. The Defendants, without admitting or denying the allegations set forth in the complaint, agreed to settle the Commission's action by consenting to permanent injunctions against their respective violations.

In a related matter, on August 30, 2007, the Commission filed cease-and-desist proceedings against IES's former Chief Accounting Officer, David A. Miller, for his role in causing IES's disclosure lapses in 2003 and 2004. Miller, without admitting or denying the findings in the Commission's order, agreed to cease and desist from causing violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. See Admin. Proc. File No. 3-12741.